One of my many problems with Donald Trump was his indifference to deficit spending. Not surprising, since, in his private business career, he never seemed to mind borrowing other peoples’ money and spending it on extravagant, over-the-top projects, their economic viability being an afterthought easily resolved by bankruptcy if things didn’t work out, which was, of course, never his fault.  You can get away with running a business like that, but not a country, at least not the one with the world’s largest economy and in charge of the world’s reserve currency; at least not for long.

His indifference put the Republicans in a bind.  They’ve traditionally been the party of fiscal responsibility; but how to even pretend (Republicans, like most politicians, are better at pretending about being than actually being fiscally responsible) when your leader couldn’t care less?  Oh, well, party on.  Someone else (not sure who) will pay the bill.

So we may be grateful that his departure provides the Republicans the opportunity to sober up, reflect, repent, and recover their commitment to a balanced budget, a strong dollar, free trade, and other economic fundamentals that Donald somehow managed not to learn at Wharton (where he got an undergraduate degree, not an MBA like many people believe, and mediocre grades).

So, Republican and Democratic politicians and other assorted economically-challenged folks, here’s a quick reminder of a few basic truths, capitalized so you will know they are really, really important:

DEFICITS MATTER.  I could recite the statistics on our national debt, but that bores people, so you can look it up here if you’re interested.  At some unknowable point, the debt gets so large that it can’t be serviced, and people with money quit lending and demand their loans back.  Our fate is still in our own hands, but for how long?  We are already, as some pundit pointed out, the brokest nation in history.  When the credit runs out, budgets get cut drastically, taxes go to insane levels, and hyperinflation that impoverishes everyone is the usual result; a bankruptcy in all but name.

TAX RATES MATTER.  Having trashed Trump about deficits, it’s only fair to praise him for understanding this fact.  Companies employ their assets where they get the best return on investment, and all other things being equal, lower tax rates give them both a competitive advantage and higher ROI.  Setting tax rates too low matters, too.  Not collecting enough revenue to pay the bills forces borrowing, which is not just bad, it’s stupid, because deficits matter.

COMPANIES DON’T PAY TAXES, PEOPLE DO.  Now, economic know-nothings like socialists in general and Senator Elizabeth Warren in particular will argue with you about this one, but what else is new?  Take it from a businessman – taxes are just another cost of doing business.  Just another expense, that’s all, that either (1) gets rolled into the price of products, meaning customers (i.e., people) pay, or, if competitive pressures won’t allow a price increase, (2) spurs companies to cut costs, particularly labor costs, meaning employees (i.e., people) make less or lose their jobs, or (3) results in lower profits, meaning that the owners (i.e., people, often through the insurance companies and pension plans that hold the stock for them) earn less money.  Economists who study such things say it’s usually a combination of the three.  But not all politicians are economic know-nothings.  Some of them are clever tax-and-spenders, and they know that hiding tax increases on people by imposing them indirectly on business is a sure-fire winner with a large part of the population.  Sigh.

TARIFFS AREN’T PAID BY FOREIGN COMPANIES OR GOVERNMENTS, THEY ARE PAID BY AMERICANS.  When tariffs are imposed, Americans pay in several ways.  They may pay more for the same products, or more for domestically-produced products (which they didn’t buy previously because they were more expensive), substitute a similar but lower-quality, less-satisfying product, or simply forgo the product altogether.  Less business for importers means job losses, lower profits and, possibly, failed companies.  Since affected nations always impose retaliatory tariffs, American exporters suffer.  For these and other reasons, tariffs are a dumb idea that almost always hurt us more than they do the other guy – and we pay for the privilege.

GOVERNMENT IS REALLY BAD AT PICKING WINNERS AND LOSERS.  Witness Solyndra, which cost the government (actually, you and me) around a half-billion dollars.  Markets, with all their maddening shortcomings, are still better than bureaucrats and politicians at figuring out what provides the most value to consumers, and they do it with private money, not the taxpayers’.

EVERYBODY NEEDS SKIN IN THE GAME.  Government is not free, although you’d never know it if you’re in a low-income bracket and pay little or no tax.  Everyone should pay something; first, as a simple matter of fairness, second, so that everyone has an incentive to make sure that the government is spending every penny wisely, and, third and the most important reason of all, to pay the bills.  Speaking of which,

THE PURPOSE OF TAXES IS TO PAY THE BILLS.  It’s not to encourage behaviors favored by the powers-that-be, no matter how righteous, or to discourage behaviors not in fashion.  It’s not to nudge people to do or not do something, or favor one industry over another (see Winners and Losers, above), it’s just to pay the bills.  So find a fair way to tax everyone pretty much equally, and leave them alone to figure out for themselves how they will live, work and play.

Well, that’s enough lessons for one day.  Not rocket science, but pretty important for politicians who are serious about good government.

Kenneth D. Gough © 2021